Consensys Inner Conflicts Spark Legal Action Against Founder

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Ethereum cofounder Joseph Lubin was recently summoned to court in New York when a former employee initiated a lawsuit for more than $13 million. According to the summons stemming from former Token Foundry CEO, Harrison Hines, relief was being sought for alleged unpaid profits, fraud, unjust enrichment, and breach of contract.

Also Read: Another Self-Proclaimed Satoshi Appears in the High Profile Bitcoin Lawsuit

Consensys Founder Summoned to Court

A New York-based court summons dated June 5 shows that Joseph Lubin was accused by his former employee, Harrison Hines, of a variety of abuses tied to the Token Foundry project. Lubin is the founder of Consensys and one of the many cofounders of the Ethereum project. Hines’ legal council states in the summons that the action is due to a breach of contract. Additionally, the plaintiff is seeking damages for unpaid profits, and fraud connected to the Consensys satellite project called Token Foundry. The project consisted of a marketplace of vetted tokens that investors could purchase. At least four live sales took place on the Token Foundry marketplace. According to the summons from Hines’ legal team Canelaw LLP., the plaintiff is claiming more than $13 million in damages.

“The relief sought is monetary damages in the amount of $12,827,000 on the contract, quasi-contract and fraud claims plus $404,783 in unpaid profits,” the summons details.

Consensys founder and Ethereum cofounder Joseph Lubin.

Consensys is a company Lubin founded in 2014 based out of Brooklyn New York. The project is considered a dedicated blockchain tech company and venture studio. Several of the startups used initial coin offerings to fund their roadmap including Singulardtv, Gnosis, and Civil. The company has called itself a “hub and spoke” business model and the blockchain startups under the Consensys umbrella were the spokes. One of the spokes was an ICO market called Token Foundry which was initially led by Hines. The former Token Foundry CEO detailed in an interview that he believed the ICO ecosystem was irresponsible at times and his company aimed to fix the situation.

“I would say there is a lot of reckless behavior going on in the token ecosystem or has been, for quite a while. I think it’s important to really try to change the narrative about tokens and really set a standard for how to properly go about launching these new networks and selling tokens in a way that better protects consumers,” Hines explained in May 2018. He added:

Things were crazy, people were doing really, really not good things, and it was very clear to see why regulators weren’t happy.

Token Foundry Issues and Downsizing the Hub and Spoke

Issues revolving around the Token Foundry project began appearing over eight months ago. According to one report, people familiar with the matter said that Token Foundry’s CEO Harrison Hines had already left the company prior to November 2018. In addition to Hines, another eight employees were also dismissed or voluntarily left the project. At the time, Consensys executive Jay Thakrar said the company was continuing to reassess Token Foundry’s future success. The old website leads to a new site where people can leave their email to find out about the project’s next moves. The project did raise $50 million between all the hosted ICOs including Dether, Virtue Poker and FOAM. But skeptics say Token Foundry didn’t do so well because of the ICO slump of 2018 and a Russian competitor called ICO Box.

Reports at the time stated that Consensys was planning to cut 50-60% of its 1,200 person team. The information stemmed from reviewed term sheets of the Consensys portfolio which claimed that some of the startups had zero financial backing. “Often without the financial support they’d need to find outside funding and succeed,” wrote news outlet the Verge when journalists combed the term sheets.

The original AMA post of the Reddit user who said he was let go from Consensys was deleted but it was archived on the Wayback Machine prior to deletion. At the time, sources familiar with the matter and a small group of former Consensys employees reached out to various crypto publications to explain what happened when they were let go.

At the time the company spoke to the press and did not deny the layoffs. Consensys said they were in discussions with all the startups under the business to “determine a path forward.” Data stemming from Wikipedia indicates that the current Consensys workforce stands at 900 employees. Last December, a former Consensys employee took to Reddit and did an ask-me-anything (AMA) post about the layoff. However, the post was deleted by the person who started the thread or by Reddit admins.

“Can provide proof to mods. Ask me anything and I’ll answer so long as it doesn’t dox or mention anyone by name outside of public emissions,” the former employee stated at the time. “I’ll let this gather some questions and will reply in batches until sometime tomorrow. Will try to get to everyone. Need to ask people to be respectful – a lot of other people lost their jobs today, there’s no need to make the event more stressful.” In the comments the person added:

[Consensys] was at times debilitating when it came to accountability and internal processes (from expense reporting and onboarding to designing new initiatives). How do you keep people accountable in a remote first leaderless (but leader-full) company? It seemed as if the emphasis was on discovering what could emerge from the bottom up and less on designing from the top down.

Embracing New Funding Vehicles After the Slow Demise of the ICO Craze

Eight months later, the company is still working with its spoke startups and a month ago the project 3Box raised $2.5 million. Placeholder Ventures, Northzone, Venrock, and Coinfund participated in the 3Box seed round. On July 2, the South Korean news agency Chosun reported that the large Telecom corporation SK Group invested $10 million into the Brooklyn-based incubator project Consensys. The report noted that the SK chairman was a supporter of blockchain innovation and the token economy and said that Consensys will “greatly contribute to SK and startup development.”

Joseph Lubin’s defense attorney responds to Hines’ complaint.

The summons which cites “unpaid profits arising from the defendants’ acts in connection with the business known as Token Foundry” could be settled out of court. Reports state that Consensys has responded to the court summons. According to his Linkedin profile, Hines is now in charge of a startup called Terminal Systems with a few former Consensys employees working with him. Token Foundry is still seemingly a spoke startup within the Consensys hub, but is now part of Consensys Digital Securities. Since the ICO madness come to a screeching halt in 2018, many blockchain-centric companies have started testing new funding vehicles with security token offerings and initial exchange offerings.

What do you think about the summons sent to Joseph Lubin and Consensys? Let us know in the comments section below.

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Jamie Redman

Jamie Redman is a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open source code, and decentralized applications. Redman has written thousands of articles for news.Bitcoin.com about the disruptive protocols emerging today.